Friday, October 19, 2012

IRS raises 401(k) contribution limit to $17,500

Starting next year, employees will be able to stash an extra $500 per year in their 401(k)s, tax-free.

The tax-free contribution limit for retirement plans will increase to $17,500 for 2013, up from $17,000 this year, the IRS announced Thursday.

That's the second year in a row the IRS has boosted the contribution limit as a result of rising inflation. The limit rose by $500 last year as well.

However, the catch-up contribution limit, which is the additional amount of tax-free money employees over 50 can contribute to their retirement plans -- on top of the $17,500 that any employee can contribute -- remains unchanged at $5,500.

Along with contributions to retirement plans, which include 401(k)s, 403(b)s, most 457 plans and the federal government's Thrift Savings Plan, the agency said it will increase more than two dozen tax benefits as well.

Among them, taxpayers will be able to gift as much as $14,000 tax-free in 2013, up from $13,000.

Also, if you're a U.S. citizen living abroad, the amount of foreign earnings you can exclude from your taxable income will rise from $95,100 to $97,600.

Rising inflation also prompted the Social Security Administration to announce earlier this week that Social Security recipients will be given a 1.7% boost to their monthly benefits next year.